SKU, Marketing Details Next For Sirius XM

8/04/2008 02:00:00 AM Eastern

By: By Amy Gilroy

Now that Sirius Satellite Radio and XM Satellite Radio have merged into Sirius XM Radio, with 18.5 million subscribers, a CE industry that waited 17 months for the deal's approval is waiting again for the new company to provide workable details on products and marketing.

Retailers last week hoped one of Sirius XM's first actions would be to increase advertising, which was said to have fallen somewhat since the merger was announced, and even more so in the last quarter, according to analysts and suppliers.

Suppliers questioned their own ability to rework 2009 car stereos — already in development — so the receivers could control new a la carte radios, promised as a result of the merger. (See p. 8.)

Above all, retailers wanted answers to pass on to customers.

Crutchfield mobile merchandise senior director Carl Mathews summed up a common view: "I just want to be able to answer the questions customers will have about anything they perceive as a roadblock to buying the product. The sooner we can get this behind us, the better."

The merger, approved on July 25 with some of the heaviest conditions ever imposed by the Federal Communications Commission (FCC), left analysts and industry members guessing on other issues as well.

Yankee Group senior analyst Josh Martin is concerned that sales of OEM satellite radios could falter as it may be difficult to outfit new cars with a la carte tuners. The auto industry often requires at least 100 weeks to embed new technology in cars, according to iSuppli.

Retailers wondered if they would still get the quarterly spiff programs they have come to rely on now that Sirius and XM don't compete with each other.

Sirius XM did not respond to specific TWICE inquiries but stated that current satellite radios, including those in new cars, will continue to work and will receive many new service plans to be available within three months. Current radios will not be able to receive a la carte service, which has won much attention because it will let consumers pick and choose channels starting at $6.99/month. New a la carte radios are also due within three months.

Even digital TV felt the merger's impact. Jimmy Schaeffler, principal analyst with the Carmel Group, said the merger could rekindle interest in a DirecTV/Dish Network merger. The FCC set a precedent in its satellite radio ruling by agreeing "to operate under the umbrella of merger restrictions and concessions," and this might be used by digital TV companies "to satisfy rural American concerns about choice and control."

The Sirius XM restrictions (see story at right) were not expected to be burdensome to the new satellite radio company. But the long approval process was costly. David Banks of RBC Capital Markets said, "[Sirius and XM] had to back down in marketing to a certain extent — they couldn't work together to build a business plan during that time. Last year, the world changed a lot. Technology changed. The iPhone was introduced [and] there was an increase in traction in Internet radio. While they were waiting in limbo, the world moved on."

Sirius and XM said they spent more than $85 million on the merger and related expenses.

Industry members said they expect a lift in Christmas sales due to new a la carte radios, but not a large increase. Banks noted, "Now you'll see a much bigger push to marketing, and Christmas is the opportunity for that. But, realistically, we just don't see retail and the aftermarket as nearly as big a factor anymore as we do with auto sales. But, internally, at Sirius XM, they are probably more optimistic than I am."

Sirius XM will be headquartered in New York and XM remains in Washington as a wholly owned subsidiary. The company's board of directors is led by Gary Parsons (chairman of the new company), Mel Karmazin (CEO of the new company), Lawrence Gilberti, James Holden, James Mooney, Leon Black, Eddy Hartenstein (former DirecTV vice chairman), Joan Amble, Jack Shaw, Jeffrey Zients, Chester Huber (president of OnStar) and John Mendel.

Five of the directors —Karmazin, Gilberti, Holden, Mooney and Black — served on Sirius' board while the remainder served on XM's board.

Directors of note not included in the board are former Sirius chairman Joe Clayton and XM president and CEO Nate Davis.

The Sirius/XM merger proposal was announced in February 2007 and approved by the Department of Justice in March 2008.